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RBI's policy decisions may reduce loan rates Date: Apr 21 2012

Akshaya Tritiya 2012 could be a much happier occasion for the real estate sector with expectations of cheaper funding in the near future boosting buyer sentiment


There is a unique correlation between the price tag of a home and the rate at which one can raise a loan to finance it. Both aspects have almost equal importance for home seekers across India. This is why the decision of Reserve Bank of India (RBI) to cut the repo rate by 50 basis points and abolish pre-payment penalties is seen as a move that could boost buyer sentiments. Akshaya Tritiya 2012 could be a much happier occasion for home seekers with expectations of lower home loan rates in the near future.
The RBI announcement slashing the repo rate is the step in the right direction, said Lalit Kumar Jain, national president, Confederation of Real Estate Developers' Associations of India (CREDAI). In a cautious welcome to the RBI annual review, the CMD of Kumar Urban development Limited (KUL), said he would expect the banks to act immediately and cut rates of interest to facilitate both the home buyer and developer community.

“It is about time the repo rate cut is passed on to the end user,” he said, while emphasising that it is equally important for the Reserve Bank to cut CRR to increase liquidity in the market. “Cash crunch is one of the biggest problems being faced by the real estate industry in particular and the economy in general,” he said. He reiterated that the central bank should go in for immediate financial reforms for the real estate industry and help developers and home buyers get over the current crisis related to high cost of funding and construction.

MCHI-CREDAI has also hailed the RBI rate cut. Welcoming the RBI decision to cut repo rate by 50 basis points, the real estate developer community has expressed the hope that the benefit will be passed on to the consumers. MCHI-CREDAI president Paras Gunecha said that the commercial banks should cut rates of interest so that home loans would become affordable. 
“This will obviously encourage home buyers to go for their dream homes,” he said. High cost of funding is one of the main causes of rising real estate prices; he pointed out and expressed the confidence that the market will see some positive action. He expressed hope that RBI would facilitate further cut in rates of interest.

He also welcomed the RBI decision to scrap pre-closure of loans and felt that this could lead to competitive rates of interest and leave customers with the choice of picking their banks for availing loans. The MCHI-CREDAI president appealed to the state government to take a cue from the Reserve Bank announcement and take immediate steps to help revive the real estate industry. There are various issues like delays in sanctioning plans and multiple taxes that contribute to the very high cost of property, he added.

Shailesh Sanghvi, director, Sanghvi Group of Companies and secretary, MCHI Mira-Virar City, said, “The 50 basis points rate cut announced by RBI is a positive move and will provide impetus to the real estate sector. The reduced cost of accessing funds by developers will aid in accelerating project execution which were stagnated or delayed due to lack of funds. It will further act as a catalyst to increase demand from end users across segments; affordable, LIG, MIG and so on, due to likely reduction in the interest rates for home loans.”

Simon Rubinsohn, RICS chief economist, felt that “The RBI announced a bigger than anticipated cut in the repo rate. The 50 basis point reduction may have been encouraged by the news that core inflation fell below 5% in March, a two year low. The decision should provide a timely boost for the economy which is continuing to labour under the weight of a weaker investment climate and the government fiscal consolidation plans. While it is likely that this move from the central bank will feed through into somewhat lower lending rates, there are good reasons to question how aggressive Indian banks will be particularly as deposit growth has recently been pretty weak. As a result, the headline loan to deposit ratio is now at pretty much an all-time high.”

“That said, the home loan market remains one of the more interesting areas for the banking sector with demand for credit elsewhere flattening off. This is likely to result in an increasing level of competition in this particular segment of the market which could see mortgage rates benefiting more from today's move from the RBI than other lending rates. Even allowing for this, we suspect the impact on the housing market may be relatively modest given the suggestion from the Reserve Bank Governor that little more can be expected in the way of monetary easing in the near term. However, we would still view today's decision as an important step in the right direction of providing support both for the economy and the real estate sector,” he added.
Dhaval Ajmera, director, Ajmera Realty & Infra India, said, “The realty industry has welcomed the Reserve Bank of India's (RBI) decision and feels it is a positive step for home buyers after a lukewarm budget. The resulting reduction in interest rates that banks are expected to pass on to consumers will provide a positive boost to market sentiments and result in some transaction activity in the residential sales markets. This move by the RBI is definitely a win - win situation for developers and home buyers and will definitely boost the investors sentiments in long run to invest in realty.”

According to him, the reduced interest rates will definitely see an enhanced increase in housing demand. “While the sector was already reeling under the pressures of high interest rates, this will allow banks to lower down the interest rates significantly. It is vital that the banks act immediately and cut rates of interest to facilitate the home buyer community so that buyers shall get benefitted from this. Buyers till now played the wait and watch game and had delayed their purchase decisions as they were facing the double-edged sword of rising interest rates and stubborn price levels. This move will see a pick up in the volume of sales transactions,” he added.

David Walker, ED, SARE Homes, commented, “RBI's decision to cut the repo rate by 50 basis points and abolish pre-payment penalties is positive news for the home buyers. This action will not only improve cash flow tremendously, but also encourage home buyers to buy properties. We are expecting that the bankers will also consider softening the interest rates for home loans in the near future, to further strengthen the market sentiments.”

Om Chaudhry, founder & CEO, FIRE Capital and chairman, Astrum Homes, pointed out that “The 50 basis point reduction in interest rate was a much awaited step, as high level of interest rate was hurting growth. Real estate will be a key beneficiary where developers' short term liability will be eased while the customer interest in purchases shall also go up. Bringing much needed cash flow into the sector it shall also help push incremental demand as the overall business environment shall start to look up and real estate being a major asset class will gain substantially. Nonetheless these continue to be cautious times as depreciating rupee and volatile inflation levels, which threaten input costs will continue to be counter weights to such a positive step.” 

Manoj Paliwal, CFO, Omkar Realtors & Developers Pvt Ltd., underlines, “A reduction in repo and reverse repo rate by 0.50% by RBI is rather unexpected. Generally the expectation was towards cut in CRR. However, considering the current limited scope available to RBI due higher inflation and lesser liquidity, the step taken towards bringing down the cost is appropriate. For developers and end buyers, it is a small positive gesture.”

Deepak Shah, director, Sumer Group, termed it a welcome move for the real estate and allied industries. “The demand for housing is picking up and with the reduction in the rate, if passed on to the customers, will bring positive sentiments. However, even the current rates are too high in comparison with the last year. But the difference is that the rates last year were moving upward and now they are moving downward. It will be encouraging if the inflation rate remains in control and so RBI can reduce the rates gradually over the time.”

Nishant Agarwal, MD, Avighna India Ltd., voiced caution, opining that there will definitely be an upward bias on the property rates keeping in mind the improved sentiments of the buyers. So there will be a slow rise of approximately 10-15% in property sales during this financial year but it will see a good cash flow even. All in all, it is a step in right direction although lot more measures need to be taken before we see any effect of the rate cut on the real estate sector.”

Amit Gupta, MD, Orris Infrastructure Private Limited, concurred. We hope that the rate cut would be passed onto the Industry as well as the consumers by the Banks. It will definitely provide some respite to the home loan takers. For quite some time the EMI's have increased substantially, which has resulted in people deferring their decision to buy property and squeezed those who have already taken a loan to buy property. However, concerns of inflation still remain in the economy and we hope that the government takes adequate steps to deal with this,” he said.



(DNA Property Page 4 Dated 21.04.2012)